Jul 21, 2015
Executives
Susan Lewis - IR Joseph DePaolo - President and CEO Eric Howell - EVP, Corporate and Business Development
Analysts
Ken Zerbe - Morgan Stanley Lana Chan - BMO Capital Markets Ebrahim Poonawala - Merrill Lynch Chris McGratty - KBW Steven Alexopoulos - JPMorgan Jared Shaw - Wells Fargo Securities Casey Haire - Jefferies Bob Ramsey - FBR Capital Market Dave Rochester - Deutsche Bank Peyton Green - Piper Jaffray Brian Horey - Aurelian Management Jay Hickman - HVM Capital
Operator
Welcome to Signature Bank’s 2015 Second Quarter Results Conference Call. Hosting the call today from Signature Bank are Joseph J.
DePaolo, President and Chief Executive Officer and Eric R. Howell, Executive Vice President, Corporate and Business Development.
Today's call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.
[Operator Instructions] It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer.
You may begin.
Joseph DePaolo
Good morning and thank you for joining us today for the Signature Bank 2015 second quarter results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer.
Please go ahead, Susan.
Susan Lewis
Thank you, Joe. This conference call and all statements made from time-to-time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties.
You should not place undue reliance on those statements, because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict and may be beyond our control. Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings and business strategy.
As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward-looking statements.
These factors include those described in our quarterly and annual reports filed with the FDIC, which you should review carefully for further information. You should keep in mind that any forward-looking statements made by Signature Bank speak only on the date of which they were made.
Now, I’d like to turn the call back to Joe.
Joseph DePaolo
Thank you, Susan. I will provide some overview into the quarterly results and then Eric Howell our EVP of Corporate and Business Development will review the Bank’s financial performance in greater detail.
Eric and I will address your questions at the end of our remarks. Signature Bank delivered another exceptional quarter of growth and performance resulting in our 23rd consecutive quarter of record earnings.
We again delivered strong deposit and loan growth, expanded top-line revenues, maintained stellar credit quality and continued to invest in our future with the second quarter hiring of one private client banking team and another team thus far in the third quarter. Additionally, we launched our municipal finance and commercial vehicle finance businesses.
I will start by reviewing earnings. Net income for the 2015 second quarter reached a record $90.5 million or $1.77 diluted earnings per share, an increase of $18 million or nearly 25% compared with $72.5 million or $1.48 diluted earnings per share reported in the same period last year.
The considerable improvement in net income is mainly the result of an increase in net interest income, primarily driven by strong deposit and loan growth. These factors were partially offset by an increase in non-interest expense attributable to our revenue growth initiatives as well as in part regulatory and compliance costs.
Looking at deposits, deposits increased $430 million or 1.8% to $24.46 billion this quarter including core deposit growth of $413 million, while average deposit growth of $1.17 billion more than doubled core deposit growth. In the past 12 months, deposits increased $4.7 billion, core deposits increased $3.75 billion and average deposits increased $5.5 billion.
Non-interest bearing deposits of $7.8 billion represent 32% of total deposits and grew $436 million this quarter. The substantial deposit and loan growth coupled with earnings retention led to an increase of $5.4 billion or 22% in total assets since the second quarter of last year.
The ongoing strong deposit growth is attributable to a superior level of service provided by all of our product client banking teams who continue to serve as a single point of contact for their clients. Now, let’s take a look at our lending businesses.
Loans during the 2015 second quarter increased $1.23 billion or 6.4% to $20.5 billion. In the prior 12 months loans grew $5.1 billion and represent 68.5% of total assets, compared with 62.9% one year ago.
The increase in loans this quarter was primarily driven by growth in commercial real estate and multi-family loans. Our credit quality remained solid this quarter with non-accrual loans increasing to $41.6 million or 20 basis points of total loans, compared with $27.8 million or 14 basis points for the 2015 first quarter and $32.7 million or 21 basis points for the 2014 second quarter.
The provision for loan losses for the 2015 second quarter was $9 million compared with $7.9 million for the 2015 first quarter and $7.6 million for the 2014 second quarter. Net charge-offs for the 2015 second quarter were $2.6 million or an annualized five basis points, compared with $1.5 million or three basis points for the 2015 first quarter and 718,000 or two basis points of the 2014 second quarter.
Consequentially the allowance for loan losses was 0.86% of loans versus 0.88% in the 2015 first quarter and 0.98% for the 2014 second quarter. Additionally the coverage ratio remained very strong at 426%.
Now, turning to the watch list and past due loans, watch list credits increased by $122 million to $266 million, or a low 1.3% of loans compared with $144 million, or 75 basis points of loans for the 2015 first quarter. The increase was due to our decision to place the bulk of the Chicago taxi medallion portfolio on the watch list.
During the 2015 second quarter, we saw a decrease of $9.3 million in our 30-day to 89-day past due loans to 37.6 million. 90-day-plus past due loans increased by $20.2 million to $24 million.
$9.5 million of this increase was due to New York City tax median loans that were already refinanced this month and are now current. While we are pleased that our credit metrics were strong again this quarter, we remain mindful of the uncertainty in the global economic and political environment and again we appropriately reserved.
Just to review teams for a moment, we added one private client banking team in the second quarter and another thus far in third quarter bringing the year-to-date total to five. Additionally, we launched municipal finance and commercial vehicle finance businesses.
At this point, I’ll turn the call over to Eric and he will review the quarter’s financial results in greater detail.
Eric Howell
Thank you, Joe and good morning, everyone. I’ll start by reviewing net interest income and margin.
Net interest income for the second quarter reached $236.3 million, up $42.6 million or 22% when compared with the 2014 second quarter, an increase of 6%, or $13.8 million from the 2015 first quarter. Net interest margin decreased four basis points in the quarter versus the comparable period a year ago and increased one basis point on a linked quarter basis to 3.27%.
Excluding prepayment penalty income, core net interest margin for the linked quarter remained unchanged at 3.17%. Let’s look at asset yields and funding costs for a moment.
Due to the prolonged low interest rate environment and heightened competitive landscape, interest earning asset yields declined 13 basis points from a year ago. However, on a linked quarter basis yields decreased just two basis points to 3.7%.
The linked quarter decrease was predominantly driven by headwinds from CRE refinance activity. Yields on the securities portfolio declined 10 basis points linked quarter to 3.04% given increase CPR speeds associated with lower market interest rates in the first half of the second quarter.
The duration of the portfolio increased this quarter at 3.16 years given the rise in the 10-year treasury rate at the end of the second quarter. Turning to our loan portfolio, yields on average commercial loans and commercial mortgages declined three basis points to 4.06% compared with the 2015 first quarter.
Excluding prepayment penalties from both quarters, yields would have declined four basis points. Now looking at liabilities, our overall deposit cost this quarter declined three basis point to 40 basis points, mostly due to an increase of 8% or $558 million in average non-interest bearing deposits and a three basis point decrease in our money market costs.
Average borrowings this quarter increased $52.7 million to $1.95 billion or only 6.6% of our average balance sheet. Given the short-term low cost nature of the borrowings we added as well as the run off of some higher costs borrowings, the average borrowing cost decreased eight basis points from the prior quarter to 1.34%.
Overall, the cost of funds for the quarter decreased three basis point to 47 basis points. And on to non-interest income expense; non-interest income for the 2015 second quarter was $9.8 million, a decrease of $2.6 million when compared with the 2014 second quarter.
The decrease was driven by $4.4 million gain on sale of an SBA interest-only strip security that occurred in the 2014 second quarter. Excluding in its gain non-interest income would have increased $1.8 million or approximately 14%.
Non-interest expense for the 2015 second quarter was $84.9 million versus $73 million for the same period a year ago. The $11.9 million or 16.4% increase was principally due to the addition of new private client banking teams and our continued investment in the growth of Signature Financial, coupled with an increase in cost in our risk management and compliance activities.
We anticipate these investments will facilitate further growth. Factoring in a significant hiring since last year and increased regulatory cost, the bank's efficiency ratio still improved slightly to 34.5% for the 2015 second quarter compared with 35.4% for the 2014 second quarter.
And turning to capital, our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile of the balance sheet as evidenced by Tier 1 leverage ratio of 9.16% and a total risk based ratio of 12.63% as of the 2015 second quarter. And now I'll turn the call back to Joe.
Thank you.
Joseph DePaolo
Thanks, Eric. Signature Bank has repeatedly reported record results and consistency demonstrated stellar performance across all key metrics, deposits, loans and earnings.
Due to the ways in which we efficiently utilize capital to grow our business organically by attracting talent to the list out of private client banking teams, without experiencing any of the disruptions typically associated with acquisitions and the chaos of consolidation. Additionally, we have invested time, effort and capital to diligently and prudently broaden our offerings and capabilities, extend our geographic footprint and diversify our revenue streams with the addition of complementary businesses.
We are proud of our ongoing accomplishments and 23rd consecutive quarter of record earnings, which were achieved through the collective efforts of our colleagues. We look to further our growth across all facets of Signature Bank as evidenced by our second quarter results, with strong deposit and loan growth, further team and business expansion, topline revenue growth and record earnings.
Now we're happy to answer any questions you might have. Lorry, I’ll turn it over to you.
Operator
The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Ken Zerbe of Morgan Stanley.
Ken Zerbe
Thank you. Good morning.
Joseph DePaolo
Good morning.
Ken Zerbe
Hey. First question just in terms of the NIM outlook, it sounded like obviously a very solid core NIM being stable, but it sounded like that may have benefited from some of the high cost funding ruling off.
When you look out over the second half of the year, is there anything else that could actually keep core NIM relatively stable or what's your outlook on that, thanks?
Eric Howell
Yes, well, we expect NIM to be stable over the next several quarters. We see less headwind from CRE REIT financing activity.
We'll continue to increase loans as a percentage of our balance sheet, so that will certainly be helpful and if the tenure remains where it is, we should see a slowdown in our CPR speeds. We did have a pickup in CPR speeds in the second quarter that took a couple basis points out of the NIM.
So we should have some benefits there and we expect NIM ultimately to be stable now for this next few quarters.
Joseph DePaolo
Well one of the item that may help it, not necessarily as much in the third quarter than it would in the fourth quarter is just yesterday we increased our multi-family five-year fixed interest rate from 3% and 3.8% to 3.5%. Now we have a pretty robust pipeline of CRE loans, multifamily loans, but they won't get -- we won't get the benefit of increasing the rate because anything that's already in the pipeline will get the rate of 3% and 3.8%.
So that's why I am saying we'll probably get more of a benefit in the fourth quarter.
Ken Zerbe
Got it. That helps.
And then just on some of the new business lines that you guys got into like the municipal or the commercial vehicle businesses, is there any way to help us to mention the size of that market or how meaningful these new businesses could actually be to your overall or your total loan growth?
Eric Howell
Well, if you look at the municipal business and we've been discussing this for a while, the team that we brought over from Capital One/all points are North Fork had a $4.5 billion book of business at their prior institution. $2 billion of that $4.5 billion was in the newly finance space.
However, they did have a tendency to do a little bit longer data paper than we may be willing to do here. But all that being said, we certainly expected that they will be able to grow back to that $2 billion amount but it will take a few more years I would expect.
We’re really looking for them to growing anywhere from $50 million to $100 million per year in that space and then on the commercial dealer front that’s another business that we anticipate we’ll have about $40 million to $50 million per year in annual growth.
Ken Zerbe
Got it. Okay.
Thank you.
Joseph DePaolo
Thank you, Ken.
Operator
Your next question comes from the line of Lana Chan of BMO Capital Markets.
Lana Chan
Thanks. Good morning.
Joseph DePaolo
Good morning, Lana.
Lana Chan
Can you give us an update on just the increase in the taxi medallion on the watch list and what the characteristics are in the current LTVs and debt service coverage ratios and how much of reserve you have going in right now?
Joseph DePaolo
Sure. We call it a tail of two cities, but we look that separately.
First we'll take the New York piece. We currently have $628 million in total loans for over a 1,000 medallions.
Of that $628 million, $60.7 million is pass due to 30 to 89 days. $10.3 million was pass due 90 days, but of that $10.3 million, $9.5 million was already refinanced in July and is now current.
So that’s an important point, $9.5 million of the $10.3 million is now current. There was some slowness in payments because there is less utilization of the medallions.
What that means is there were less second shift drivers but still the utilization is about 90%. And the New York portfolio the overall LTV is 77% and the debt service coverage is 1.2.
Now Chicago has 753 medallions at $172 million. Approximately $29 million is past due and $10 million is on non-accrual and year-to-date we’ve charged off about $1.9 million.
We’re currently actively working with the Chicago fleet owners and driver owners and restructuring. So in June we restructured $60 million and in July we’re restructuring $52 million.
The current LTVs is 92% and the debt service coverage on the Chicago portfolio is 1.28. Now something I think bodes -- pointing out is that with medallions we consider them as what we call hostage collateral and what that means is this is their livelihood.
When they give up a medallion they're not just giving up an asset, they're giving up their job and it's very different from collateral for another type of loan. So that’s why they’re willing and we’re willing to work with them and I think the key thing is that it's their livelihood and it's all about cash flow and the cash flow right now is such that will be paid back.
Lana Chan
Thank you. And can -- do you have the reserves allocated to the portfolios?
Eric Howell
It's about 1% in reserves in the New York portfolio and about 4% on the Chicago portfolio.
Lana Chan
Great. Thank you.
And just a follow-up question on fee income, you had some pretty good growth on the fees and service charges as well as commission this quarter. Anything to call out there or do you think those are sustainable levels?
Eric Howell
I think they're fairly sustainable and we’re just seeing an increase in client activity and we did see some activity in our FX and swap businesses that helped that along, but mostly just a pickup in client activity.
Lana Chan
Okay. Thank you.
Joseph DePaolo
Thank you, Lana.
Operator
Your next question comes from the line of Ebrahim Poonawala of Merrill Lynch.
Ebrahim Poonawala
Good morning, guys.
Joseph DePaolo
Good morning.
Ebrahim Poonawala
Just a quick question, Joe, you talked about raising the pricing on the CRE multi-family loans earlier, I guess last quarter. Can you just take that and what drove that decision and just also touch upon what the comparative landscape is both from a loan growth standpoint as well as from a hiring standpoint?
Joseph DePaolo
What drove it was over the last quarter, we’ve seen rates increase both on the treasuries and on swaps and we’ve seen the increase being sustained and we’ve been wanting to raise interest rates for the last several weeks, but competition wasn’t moving and we’re always call it higher, you can’t be a half or more higher because no matter how much they want you and no matter how efficient our commercial real estate team is, half is a half and it means a lot. So some due diligence was done last week and again yesterday and it was found that our competitors were raising their five year fix let’s say as low as 3% and 3.8% to 3.5%, I’m sorry to 3.25%.
So they raised to 3.25%, we were 3% and 3.8% and we simply raised ours to 3.5% and that was yesterday so like I said earlier anything in the pipeline gets to 3% and 3.8%. So we should see more of an effect on interest income in the fourth quarter.
Ebrahim Poonawala
Understood. And I guess just in terms of loan growth looking out into the back half of the year, I guess do you see the same sort of momentum you had in the first half continue and also are you continuing to see opportunities for closing on larger packages, which was obviously a big contributor last quarter in 1Q?
Joseph DePaolo
Well, I can tell you that the pipeline for loans during the period now is as strong as it was going into the second quarter. So going into the third quarter is equal to going into the second quarter in terms of the pipeline.
So the second half of the year at least I'll talk about the third quarter bodes well. In terms of large loans or packages at $25 million and above let's give a reference point, we had $691 million in the first quarter.
We had $326 million in the second quarter between four packages and two loans that exceeded $25 million. Anything else?
Operator
Your next question comes from the line of Chris McGratty of KBW.
Chris McGratty
Hey good morning, everybody.
Joseph DePaolo
Good morning, Chris.
Chris McGratty
Joe or Eric, just to close loop on the taxi on the exposure in Chicago, is there an active market so which you could dispose this portfolio if you decided to?
Joseph DePaolo
There is certainly buyers in the marketplace when you say it's tremendously active at this time, but we're not ultimately looking to exit the portfolio right now.
Chris McGratty
Okay. Just a question Eric on the margin, do you have the dollar amount of the premium amortization both in the first quarter and in the second quarter?
Eric Howell
I don’t have the absolute dollar amount, but I can tell you that premium amortization was $1.2 million greater in the second quarter versus the first quarter.
Chris McGratty
Okay. That’s helpful.
Thank you. And then maybe a last question, your leverage ratio is about little over 9%, 9.2% or so.
I believe if memory serves me right last time you were around 8.5%. Joe or Eric can you talk about your outlook for capital maybe in the next 12 to 24 months or maybe a potential need if the growth continues to be as strong as it is?
Thanks.
Joseph DePaolo
Thanks Chris. It’s an interesting question because of what’s going on right now with the big institutions and what I mean by that is with Basel III they have to keep higher levels of capital due to more risk that's on the balance sheet and because of the higher levels of capital, that is necessary to be capped because of the risk, they would end up having capital levels higher than us.
And we’ve been using for the last 14 years, our stance that our capital levels were higher than the multi-trillion dollar institutions and we were safer at least in terms of capital ratios. When you look at that and you look at the fact that you had a billion dollars of growth in loans and/or deposit rates consecutive quarters and we’ve added on a number of businesses in addition to adding on a number of teams, ABL franchise lending, commercial marine and equipment finance, commercial vehicle and municipal finance.
And then we’re actually hiring some additional executive sales offices from GE at Signature Financial and the fact that we're generating tremendous amount of capital with earnings, but the growth is always exceeding that earnings or earnings capacity at the moment. Based on all that, we’re having a lot of discussion about whether or not we should take the stance that we don’t need higher levels of capital and the fact that the chases of the world need higher level of capitals because of their risk or do we raise capital to be close to the levels that a multi-trillion dollar institution has.
So when you say all that, it comes down to we’re having a lot of discussion and the markets have to be respective which they seem to be. We always had capital in anticipation of growth, not when it’s needed and we’re not shy about doing it.
So I’m just kind of giving you a brain dump of all the things we’re thinking about, without leading you to exactly where we are going to end up.
Chris McGratty
Okay. That’s helpful.
Thank you, Joe.
Joseph DePaolo
Okay. Thanks, Chris.
Operator
Your next question comes from the line of Steven Alexopoulos of JPMorgan.
Steven Alexopoulos
Hey, good morning everyone.
Joseph DePaolo
Good morning, Steve
Steven Alexopoulos
Joe, what change versus last quarter that you decided to move the bulk of the Chicago tax medallion loans to the watch list?
Joseph DePaolo
They were all current in the first quarter for the most part. And we saw a little bit of a slow down and we thought it made sense particularly since there was going to be a lot of those loans as TDRs for the quarter.
It made sense at that point to put them on the watch list when we refinanced them. We wanted to get ahead of the situation and not be behind the situation whereby, if we didn’t do the refinance, they would be coming to us anyway.
So it made sense. We didn’t put them all on the watch list though, probably two-thirds.
Steven Alexopoulos
And Joe, can you give color on the restructuring that you're actually doing or you haircutting principle, getting more collateral? What exactly you're doing with the restructuring?
Joseph DePaolo
I won’t because we don’t want our competitors to know. I will tell you this, we're not taking haircuts.
We're not forgiving principle, but probably changing some interest and we're certainly getting more collateral.
Steven Alexopoulos
And more amortization?
Joseph DePaolo
That’s right and more amortization.
Steven Alexopoulos
Got it. Okay.
Go ahead.
Joseph DePaolo
No. I just want to say there was originally IOs, because that's what the market was, when you didn’t dive and you did interest only and as Eric pointed out, we now get amortization.
Steven Alexopoulos
Okay. So maybe to shift gears and look at deposits for a second, the period end deposits were fairly soft and looks like our interest bearing were flat.
Any color on this and is this any read through as we head into the third quarter?
Joseph DePaolo
Well, we're into long-term growth and I’m surprised that I get questions about where we are at period end on deposits because the average deposit growth was over $1.1 billion and let me give you an example of what happened in July. In the first 10 to 14 days of July, we had four clients make deposits of $1.16 billion.
And on July 15, $780 million was withdrawn from one of those four clients. If we had gotten that $1.16 billion at the end of June, I think everyone would be applauding that we had $1.5 billion in deposits grow at period end.
One of the things Eric has said multiple times is that we look at the average because there is a portion of our deposits at a very choppy due to inflows and outflows of escrows particularly when you have watch quest action lawsuits and 31 and the like. So there’s nothing to read into it other than that.
It really was a timing issue. Deposit growth is fairly robust right now.
Here we are July 21; however, I can’t tell you what it will be on July 22 because of the inflows and outflows, but nothing to be into it at all.
Steven Alexopoulos
Okay. And Joe maybe one final one, anything that you’re seeing related to the zero rent increase on stabilized that was past?
Are you expecting any impact to the business? Thanks.
Joseph DePaolo
Thanks. No it’s almost like everyone was expecting it and it seems like our clients have moved on, because there was an expectation, remember there they’re very experienced owners, developers, the ones that can afford things like this that happen.
So it was expected and we don’t see anything from a P&L standpoint, particularly the CRE portfolio credit-wise as pristine.
Steven Alexopoulos
Okay. Thanks for taking my questions.
Joseph DePaolo
Thanks Steve.
Operator
Your next question comes from the line of Jared Shaw of Wells Fargo Securities.
Jared Shaw
Hi. Good morning.
Joseph DePaolo
Hey Jared.
Jared Shaw
Just following up on the deposit question, as we see the shift more into core, is that more a permanent transition or is that more of the average versus period end items that you were just talking about and also is there -- is that something that we should be seeing more of a -- expecting more of a greater focus on core?
Joseph DePaolo
We continue to focus on core. I think there are times when we get some deposit flows and look like they’re not core, but from an escrow standpoint, we consider them core, because well -- we don't considering them core, but we do consider them core from our advantage point.
That’s what I mean. We tell everyone that they're escrows, but their operating accounts that just happen to have big flows in and out.
Example 10.31, you have constant transaction. So if we have the main operating account every 90 days there maybe another transaction or transactions.
So we haven’t changed anything from day one. It may look like a shift, but it’s really not.
Our teams are pretty sedulous in going after core deposits and we see that we remain that way.
Jared Shaw
Okay. Great.
Thanks. And then when you look at the declines this quarter in cash and securities balances, was that -- is that something we should expect to continue to seek trending down?
Are those assets going to be funding loan growth in the future and ultimately where would you like to see that loan to deposit ratio fall out?
Eric Howell
Well, cash we think is at a level now that will probably sustain to that or around these levels. We did have quite a bit of excess over the last few quarters.
The securities portfolio is really more a function of where the tenure was. For the majority of the quarter it was not a very good quarter for us to invest in.
We started to deploy into the securities portfolio at the end of the second quarter and we continue to do so throughout the third quarter. So I'll expect to see that those balances would increase or certainly not fall from the levels that they're at now.
As it relates to loan-to-deposit or loan-to-asset ratio, we’re always away from being anywhere near where we wanted to settle out. So we can kind of assess that as we grow those ratios.
Jared Shaw
Okay. Great.
Thanks. And then finally looking at the allowance for loan loss ratio that's continued to decline as you're growing the signature of financial -- signature finance sections and you have the trends in tax this quarter.
Should we expect to see that as a percentage of the loan book start to grow as these other lending categories continue to grow or is there still some room for that to come down?
Joseph DePaolo
Well, it’s hard to say, because we do an analysis every month pretty consistently, but we will say this. The reserves that we have on the multi-family portfolio is much higher than our competitors.
And as our multi-family portfolio continues to mature that may go one way where the other new businesses that we’re bringing in could be going the other way in terms of building reserves and they could offset each other. We just don’t know, but that’s how we’re thinking.
Jared Shaw
Great. Thank you very much.
Eric Howell
And Jared just to add to that, if you look at the signature financial portfolio, it's really not high loss businesses especially the municipal business, which has been a zero loss business for pretty much ever. So we don’t really see those adding significantly to our reserve and methodology.
Jared Shaw
Great. Thank you.
Joseph DePaolo
Thanks Jared.
Operator
Your next question comes from the line of Casey Haire of Jefferies.
Casey Haire
Hey. Good morning, guys.
Just one from me, Eric you mentioned you’re investing again late in the quarter and continuing in the third quarter here. I was just curious what is the yield on new money securities?
Eric Howell
In the 2s and some in the low 3s.
Casey Haire
Okay. Great.
Thank you.
Eric Howell
Thank you, Casey.
Joseph DePaolo
Thank you, Casey.
Operator
Our next question comes from the line of Bob Ramsey of FBR Capital Market.
Bob Ramsey
Hey good morning, guys. Did you have the dollar number for loan prepayments?
I saw you it was 10 bps, so just curious you have the dollar amount?
Eric Howell
Okay, give me a second Bob.
Bob Ramsey
Sure.
Eric Howell
$7.3 million in prepayment penalties in the quarter.
Bob Ramsey
Perfect. Thank you.
And then maybe could you a little bit on fee income, it seem to me that commissions and deposit fees were probably at record levels this quarter and gain on sale loans is also strong. Just kind of curious what’s driving that strength and how you’re looking at those line items?
Eric Howell
It’s really just overall growth in clients and client activity Bob. I can’t really point to any one particular item that’s driving that.
I think it’s just an overall growth in our client base and they’re doing more business with us.
Bob Ramsey
Okay. Fair enough.
Thank you very much.
Eric Howell
Thanks Bob.
Joseph DePaolo
Thanks Bob.
Operator
Your next question comes from the line of Dave Rochester of Deutsche Bank.
Dave Rochester
Hey good morning, guys. Nice quarter.
Joseph DePaolo
Hi Dave. Good morning.
Thank you.
Dave Rochester
That was encouraging to hear on the pipeline, the loan pipeline, given 3Qs normally seasonally softer quarter. Are you still looking for a little bit of softness there or would you think that given a stable pipeline, that growth could actually bug that seasonality a little bit?
Joseph DePaolo
Well, the pipeline is strong and it’s strong where it needs to be in the beginning of the quarter, because there will be some softness towards the end of August. We have one thing going against this year that we didn’t have last year and I know this will make some people smile.
But last year we had an advantage because Labor Day was the 1 of September and that meant clients were coming back sooner. This year Labor Day is September 7, which means clients come back a week later and some loans maybe pushed into the fourth quarter.
Having said that, the pipeline in the beginning and what we’re booking in the beginning of the quarter is very strong which is where it needs to be.
Dave Rochester
Great. And then just one on expenses, I was just wondering how much of the expense from the hires that you’ve announced is already embedded in that 2Q run rate and then would you expect hiring to slow here in the back half as you build that pipeline for next year?
Eric Howell
Yeah, I’d say most of the expenses baked into the second quarter numbers. So I wouldn’t see too much of a bump for the third quarter.
And we are typically when we get this late into the year, we’re setting the stage for hiring for next year. There may be a team or two before the end of the year, but we’re really setting the stage for next year.
Dave Rochester
Got you. And then just one last one on the tax rate, it was a little bit lower this quarter.
Where does that settle in the back half of the year?
Eric Howell
I'll go with 41%. There were changes in the New York State and City tax laws that were beneficial for us.
So we should see our effective rate come down to approximately 41% for the back half.
Dave Rochester
Do you think that flows in the next year too?
Eric Howell
Yes.
Dave Rochester
Great. Thanks guys.
Joseph DePaolo
Thanks.
Operator
Your next question comes from the line of Peyton Green of Piper Jaffray.
Peyton Green
Yes good morning. I think Dave just got my questions, but maybe Joe if you step back and take a look at the overall business, are you more optimistic now than you were six months to a year ago?
How is the hiring landscape shaping up as you look at the pipeline, did they not really develop until the beginning of next year, but how do you feel about that relative to prior periods?
Joseph DePaolo
Well, I feel very good because we hired five teams that were starting to contribute that will contribute greatly as time goes on. The commercial real estate team continues to act and they have now over 40 in their group, which is a wonderful group that’s developing and continues to develop commercial real estate for us.
The ABL team has now been around a couple of years and is starting to contribute. Signature Financial is adding online to business.
Everything bodes well and we've been able to keep our expenses low. The only thing that clouds all of this is the continued expense and brain damage that we have to go through as it relates to regulation and some of things that we hire consultants for that are oddly ridiculous but necessary to do.
That’s the only thing that clouds the growth of an institution, the time that has to be spent where I believe it's unnecessary in some instances.
Peyton Green
But to get the sense that most of that expenses are imbedded in the Q2 run rate or is there another ramp going forward?
Joseph DePaolo
I don’t think there is another ramp. As Eric has been saying about expenses, the regulatory expense -- when I say regulatory expense, I mean the expense that we're adding people on, personnel, we're adding consultants to help us and systems and writing procedures and policy.
Our expense rate would probably be 10% or below. If we didn’t have all that additional expense, so it's embedded in there.
I don’t think we'll have any major jumps quarter to quarter. It will just continue to be going up probably at about a mid teen rate, which we got to understand its going up let’s say mid teens every quarter at a higher base.
So there is more actual dollars. But that’s not any difference than any other institution that’s going through the compliance aspects, the risk aspects that you have to do.
It’s just getting -- there are a lot of dollars being put into it. And one of the things we're doing, Peyton that I think is very important, is that everything we do today we always have to deal with what we call the closest fire to the house.
But we have one that’s further away and we're constantly thinking about it and we're working toward it and that’s the $50 billion mark. If that doesn’t change by the time we reach $50 billion in assets, we should be ready and there should be no excuse.
Q – Peyton Green
Okay. Great.
Thank you very much.
Joseph DePaolo
Thanks Peyton.
Operator
[Operator instructions] Your next question comes from the line of Brian Horey of Aurelian Management.
Brian Horey
Hi, thanks for taking my question. I had a couple of housekeeping questions just on the medallion portfolio.
Can you give us the values that you used to determine the LTVs for Chicago and New York?
Eric Howell
We're using 250,000 in Chicago and 800,000 in New York for corporate owned and 700,000 for an individual.
Brian Horey
Okay. And was the utilization rate in the fleet in Chicago for your portfolio in the quarter?
Eric Howell
About 85%.
Brian Horey
Okay. And the New York City loans that were 90 days past due that are now current, presumably those have gone through some kind of TDR process, is that correct?
Eric Howell
No, they weren’t TDR. We're just -- they were in trouble.
It was just timing of getting the loans re-documented with the borrower.
Brian Horey
Okay. Are you all making any new loans for new clients in the taxi space at this point or are you just refinancing current clients so as they come up for renewal?
Eric Howell
We haven’t made new loans, but we wouldn’t -- we saw something that made sense, we would certainly make it.
Brian Horey
Okay. And you referenced additional amortization in some of your restructurings on some of the loans.
Historically, I guess there has been in the industry a 25-year amortization period generally speaking. To the extent that new loans do get made, going forward do you expect that 25-year period to be the norm or where would you expect to see that come in going forward?
Joseph DePaolo
Well one of the things we saw, we expect it to be wherever the industry is, one of the things that in terms of the industry many of them were IOs. They weren’t all with amortization.
They were three year IOs and we changed the two amortization as part of the refinance.
Brian Horey
Okay. So is there a new rule of thumb as to what kind of amortization period makes sense you think for this kind of asset?
Joseph DePaolo
No.
Brian Horey
Okay. Thank you.
Joseph DePaolo
Okay. Thanks.
Operator
Your next question comes from the line of Jay Hickman of HVM Capital.
Jay Hickman
Hey guys, thank you. Couple of quick question.
Did you indicate that your Chicago debt service coverage was 1.28 and that would be an uptick I think from the last quarter? Could you explain how that happened?
And second could you give us a breakout of your New York City corporate medallion loans versus independent loans?
Eric Howell
The 1.28 was about the same as the first quarter on the debt side.
Jay Hickman
Okay. I thought you would say 1.20.
Eric Howell
And our corporate balance is $116 million and individuals are $511 million.
Jay Hickman
Okay. And one last, what did you use for New York's value -- medallion values in the third quarter because I think you said your LTV, excuse me in the first quarter, you said your LTV was 77% in both quarters, but I thought you used about $100,000 more in the value for each of the corporate individuals in the first.
Am I wrong on that?
Eric Howell
Yes, well we used 900 for the corporates and 800 for the individuals.
Jay Hickman
In this quarter and same in the first quarter?
Eric Howell
Yes.
Jay Hickman
Okay. Thank you, guys.
Eric Howell
Thank you.
Operator
At this time there are no further questions. I'll now return the call to Joe DePaolo for any addition or closing remarks.
Joseph DePaolo
Thank you for joining us today. We appreciate your interest in Signature Bank and as always we look forward to keeping you apprized of our developments and now I’ll turn it back to you Lorry.
Operator
If you would like to listen to a replay of today's conference, please dial 800-585-8367 and refer to conference ID number 80820311. A webcast archive of this call can also be found at www.signatureny.com.
Please disconnect your lines at this time. And have a wonderful day.